10 hidden costs of buying a home
You’ve spent years saving a down payment and you’re finally ready to buy a home. It’s more than exciting, but it’s important to get into the buying process fully aware of the expenses you are going to incur – and there are many.
Buying a new home is an important transaction that requires many checks and balances. That’s a good thing, but it also means a lot of people and paperwork will be involved, and none of it is free.
Many buyers make the mistake of believing they’re ready to start shopping for a new home as soon as they save a down payment, but that’s just the start. There are many one-off costs involved in the buying process, and beyond that, online mortgage calculators don’t always offer a realistic idea of a monthly payment.
Therefore, it is important to do your homework before you bid so you know what to expect. Read on to learn the 10 Hidden Costs of Buying a Home from several seasoned real estate agents..
Last updated: March 16, 2021
Pre-approval credit check
Before you buy a home, you need to know how much you can afford. Getting pre-approved for a mortgage allows you to make a solid financial decision while strengthening your offer.
“More and more lenders are pre-billing customers to withdraw their credit for pre-approval,” said Jason Gelios, a Southeast Michigan real estate agent. “This is because the lender has to cover this cost up front. Usually it’s a small cost, but you have to take that into account.
An important part of the buying process, a home inspection allows you to make sure the home is in good working order. A professional will inspect the property and identify any items that require repairs.
“Complete home inspections can range from around $ 300 to $ 500,” said Brittany Love, real estate agent at EXP Realty in Albuquerque, New Mexico.
Beyond that, she said any extra inspections you choose to have – i.e. lead-based paint, radon, asbestos, mold – can cost several hundred dollars. dollars each, which can add up quickly.
“Inspections aren’t required to buy a home, but are important for peace of mind and strongly encouraged if you can afford the cost,” said Love, who is a licensed real estate agent in New Mexico and Florida. .
No home is perfect, so your home inspection will likely highlight at least a few repairs that need to be done. However, the seller is not required to pay this cost.
“In a seller’s market like the one we see today, buyers generally take responsibility for making repairs once they move into the home,” Love said. “Due to multiple offers, some buyers are willing to accept a home as is and not ask the seller to make repairs. “
Following: Home renovations that will pay off
Usually commissioned by the buyer’s lender, an appraisal is an appraisal by a licensed appraiser of the home’s market value. Lenders require this to protect themselves, to make sure that you don’t borrow more than the value of the property.
“Unless you pay cash or spend a significant amount of money on your new home, the mortgage lender will require an appraisal,” Love said.
She said the assessment will cost around $ 500 and is an upfront cost, usually paid for before closing.
If your future residence is located in an association of owners, you may be subject to transfer fees, in addition to monthly or annual contributions.
“Some homeowners associations charge both the buyer and the seller a fee to transfer ownership,” said Deb Tomaro, a Bloomington, Indiana-based real estate agent. “It’s like a setup fee to set up the new owner in their HOA system. It can cost several hundred dollars.
She also recommends asking if the HOA has any current ratings.
“Sometimes an HOA doesn’t have enough money to do major building repairs, so they have to raise extra funds from everyone,” Tomaro said.
She said it can range from a few hundred dollars to tens of thousands of dollars, and isn’t always disclosed to the buyer, so be sure to educate yourself.
When a down payment is less than 20% of the purchase price – and also for most FHA and USDA loans – buyers generally need private mortgage insurance, according to the Consumer Financial Protection Bureau. Used to reduce lender risk, the additional cost is built into the monthly mortgage payment.
“If a buyer works with a reputable lender, he will have mentioned it to the buyer [or] claimant, ”Gelios said. “But homebuyers shouldn’t assume they will.”
Before closing your home, your lender will ask you to purchase home insurance. Love said lenders typically require three months of home insurance to be prepaid at closing.
“Home insurance is overlooked by home buyers until they are ready to close,” Gelios said. “I always advise my buying clients to get an insurance quote when accepting their offer, to give them an idea of what it will cost.
One of the most often overlooked – or underestimated – home buying costs is property tax, Gelios said.
“Often what the seller provides is an estimate of what they are currently paying in taxes on the property,” he said. “Homebuyers should contact the municipality and get a rough idea of what the taxes would be if they bought the property, as they are always adjusting for a new owner. “
Becca Summers, a real estate agent for Seasons Real Estate, based in Orem, Utah, said you will start paying property taxes the day you become the official owner of the home.
“The seller will give you credit for how long you own the house in the year,” she said.
Average closing costs are typically 2% to 5% of the home purchase price, according to Zillow. Some of the more common expenses included are mortgage origination fees, escrow fees, courier fees, bank processing fees, and registration fees.
Love said another item buyers might not expect is closing costs paid to the title company or the lawyer overseeing the actual closing, when you sign the papers for your new home. She said the average cost is around $ 700 – but can be more or less depending on the price of the house – and until recently it was usually paid by the seller.
“Lately I’ve noticed a trend of buyers offering to split that cost or even pay the full cost,” she said.
When visiting your new home, all of the standard appliances were in place, but Summers said that doesn’t mean they’ll automatically become yours when it closes.
“You might be looking for a new fridge, washer and dryer if there aren’t any,” she said.
Sellers are not required to leave devices behind, so check the listing carefully to see if they are included. If you want the devices, it’s also wise to have your real estate agent write them down in the offer, to make sure you’re on the same page with the seller.
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